In the recent GST Council meeting, some decisions are taken. These decisions show the future direction of Foreign Trade Policy (FTP), directly or indirectly. Some of the decisions are as under:-
1. Extension of the present exemptions from IGST and cess for the imports under Advance Authorisation(AA) / Export Promotion of Capital Goods (EPCG) / Export Oriented Units (EOUs) up to 31.03.2021. This automatically means that, these schemes will be continued in the new FTP and exemption from IGST would be a big relief particularly for working capital blockage. This decision of extension will help the exporter to plan their future strategies and it would give them stability at least for a period of One year. AA and EOU schemes are WTO compliant as they neutralizethe actual indirect taxes on inputs. The policy for EOU has already been modified and current provisions ask for reversal of duties on domestic tariff area (DTA) sales at actuals. Hence, continuance of these two schemes is now certain. A new scheme was introduced called “MANUFACTURING IN BOND UNDER SECTION 65 OF CUSTOMS ACT” vide Circular no. 38/2018 as amended vide Circular no. 34/2019 dtd. 01.10.2019, which could replace the EOU scheme. However, the implementation of the scheme is still in question. The scheme permits duty free clearance of goods for the purpose of warehousing and / or manufacturing subject to discharging of duties at the time of sales. In spite of single reporting to Commissioner of Customs the scheme is not yet accepted wholeheartedly by the trade. One reason could be complex accounting of inputs. When we study the detailed accounting it appears that, it is more suitable for engineering goods as accounting can be traced easily. It is not possible, particularly in the field of Chemicals or other such industries, where inputs are subjected to multiple processesand therefore, exact accountability with each Bill of Entry would be difficult to maintain. The scheme is otherwise quite welcome as it reduces the cash payment of duties on imports to ‘Zero’.
2. EPCG Scheme:- Though exemption from IGST is continued up to 31.03.2021, in my personal opinion the scheme is not compliant with current WTO provisions. This is because, the exemption of duties is directly corelated to export obligation. Secondly, the machinery imported under EPCG scheme is cleared for home consumption and permanently stays in India. (under AA scheme inputs imported are physically incorporated in the export product which ultimately are sent overseas). Thirdly, there is no compulsion to use the machinery for export production and in practice the machineries are primarily used for domestic production as exports are limited to Six times duty saved amount that too in Six years. However, Government may modify the scheme, disconnecting it from export obligation to make it co-relatable to employment generation, technical upgradation etc. etc.
3. MEIS scheme:- Now it is made abundantly clear that, we would be moving towards Remission of Duties and Taxes On export Product (RoDTEP) and phasing out MEIS scheme. This scheme is definitely not compliant with Current WTO principles and therefore has to be discontinued. Everybody knows this. The mute question is whether RoDTEP would replace MEIS scheme in equal percentages? This is not possible as RoDTEP is not an incentive but refund of taxes like mandi tax, electricity duty, taxes on diesel and petrol for inbound and outbound taxes etc. etc. The actual calculation will differ from product to product, Manufacturer to manufacturer and location to location. It is extremely difficult to have individual rates and therefore some averages will have to be accepted for actual implementation of the scheme. Not only this, the scope of RoDTEP cannot be limited to specific products as almost all export products have electricity duty component and diesel -petrol tax component embedded into the costs. The percentages cannot be equal to MEIS percentages. There is one interesting case to show as an example:-“unworked human hair” MEIS rate is 5%. Can you expect RoDTEP rate of 5% for this product? RoDTEP will naturally take some time due to complexities of calculation for every single product. MEIS may be extended beyond 31st March 2020 or may not be extended, that would be Government’s decision.
The FTP primarily consists of Three Exemption schemes AA/EPCG and EOUs and Two incentive schemes i.e. MEIS and SEIS. This being the case, it appears that AA and EOU will continue in the new Policy and the MEIS will be replaced by RoDTEP. In other words, policy revolves around Indirect Tax Management.
Ministry of Commerce need to think beyond indirect tax management. What could be new ways and means to promote exports, if we wish to have 100% growth by 2025? From our last 10 years of experience, one thing is quite clear that, only incentives and indirect tax management cannot give us the desired growth.
Today’s International scenario is quite challenging. We need to think of different ways to overcome these challenges.
Your views are Welcome!!
Sudhakar Kasture
Director, EXIM Institute (A Division of Helpline Impex Pvt. Ltd.)
Mumbai.
E-mail:sk@helplineimpex.co.in